How COVID-19 Is Affecting Women Entrepreneurs in Latin America

An explosion of coronavirus cases is pummeling Latin America’s economy. The International Monetary Fund (IMF), which originally predicted a 5.2 per cent recession – the worst in half a century – has grown more pessimistic. Its latest projection shows a 9.4 per cent drop in economic activity, which would be the Latin America’s largest recession on record. While still attempting to navigate their way through this multifaceted crisis, Latin American political leaders would do well to pay attention to the economic gains earlier this century and in particular crucial role that female entrepreneurs have played in the region’s economic growth and social inclusion. The pandemic threatens to erode the important and steady achievements of the last two decades.

While rising caseloads and stay-at-home orders have helped to curtail the spread of the virus, Latin America’s  informal sector workers – representing in some countries up to 60 per cent of the labor force – many of them women, have had to decide whether to risk exposure to the coronavirus, or forgo their daily bread. Cratering demand in Europe and China for Latin American exports has added to the economic pain.

Latin America may need to turn to a closer export market for its recovery. America’s heightened interest in extricating supply chains from China and ‘nearshoring’ them represents a huge opportunity for economic growth. Under a more regionalized supply chain, trade flows that were once long-distance could evolve to shorter, cross-border flows to cut costs, build slack into ‘just in time’ supply chains, and take advantage of regulatory harmonization. The IT sector, for instance, has already gone through a nearshoring phase, with North American companies moving jobs from China and India to Chile, Costa Rica, and Mexico. A greater number of industries are contemplating similar moves. The participation of women in this shifting economic landscape will be key to deepening Latin America’s economic recovery.

The commodity boom in the early 2000s resulted in an average 5% growth per year in lifting one hundred million people, including many women, out of poverty in Latin America. According to the International Finance Corporation, pre-pandemic, women in Latin America represented 45 per cent business owners, the second highest female ownership rate in the world. (By comparison, the global rate of female ownership is 33 per cent and runs as low as 18 per cent in South Asia.) Today, because of COVID-19, one quarter of Latin Americans who only recently escaped poverty, many of them women, risk falling back into poverty.

Prior to the pandemic, several countries in Latin America stood out for promoting women in business. Panama’s open economy helped make it a model case for female entrepreneurship. In Ecuador, according to the 2019 Global Entrepreneurship Monitor, women averaged 10 per cent higher entrepreneurial activity than men. And from 2005-2019 in Colombia, more than 3,500 new entrepreneurial initiatives were led by women.

Today’s news is bleaker, however, as the Inter-American Development Bank (IADB) predicts that eight out of ten entrepreneurial ventures – a large percentage of them women-led – will be strongly affected by the coronavirus-induced economic recession.  Already, female entrepreneurs in Latin America face significant barriers to success: more limited networks than their male counterparts, fewer employees on average, and less support from the venture capital community that usually funds start-ups.

Numerous studies demonstrate that investing in female entrepreneurs contributes not only to individual empowerment but with gains in human rights and a tendency to invest a greater amount of one’s earnings into children and families – leading to further knock-on effects on social mobility and development. If rates of female ownership and investment in female-led companies decline in the post-COVID economy, this could spell further hardship for the region.

Technology start-ups are also of particular interest, both to the future of the economies and to the potential role of women in Latin American economies. For instance, Start-Up Chile, a start-up accelerator created by the government of Chile which provides free seed money, has encouraged women-led tech start-ups, helping to make the country one of the best ecosystems for technology entrepreneurship in the region. But COVID-19’s deleterious effects on investment could have a devastating impact on women in the technology industry as female entrepreneurs in Latin America already have a harder time raising capital than their male counterparts.

Latin American leaders, the US Agency for International Development, and multi-lateral financial institutions, like the World Bank, the IMF, and the IDB, should all shape their responses to the coronavirus pandemic with the unique vulnerabilities of Latin America’s female entrepreneurs in mind. Part of that should involve pressing for ambitious reforms that foster a business-friendly environment and reduce the red tape required to form a start-up. With fewer connections and few opportunities for start-up funding, women suffer disproportionately from Latin America’s often labyrinthine bureaucratic processes in attempting to open a business. Another part should include reforms to education policy that permit women easier access to STEM careers (computer specialists, chemists, mathematicians, or engineers).

To hasten and strengthen Latin America’s economic recovery, venture capital funds should consider more women entrepreneurs when selecting their target companies. They should also cultivate a strong network of female mentors to promote and mentor other female entrepreneurs. Investing in female entrepreneurs and encouraging government initiatives which finance female-led companies will create more innovative businesses, accelerate job creation, and narrow the pay gap.

Latin America’s road to economic recovery will be long and arduous, but with the right awareness and mix of policies, the region’s strong tradition of female entrepreneurs can avoid becoming the next casualty of the coronavirus.

Ryan Berg is a Research Fellow in Latin America Studies at the American Enterprise Institute in Washington, D.C. James White is a rising senior at Fairfax High School in Fairfax, Virginia.